What is incorporation?
Incorporation is the process of changing your charity’s structure from an unincorporated form (such as a charitable trust or an unincorporated association) to incorporated.
What does it involve?
The basic concept is very simple:
• Set up a new incorporated charity
• Transfer all of the assets and activities of the unincorporated charity
• Close the unincorporated charity
In reality, the nuts and bolts of the process are more complicated and any charity contemplating incorporation should go in with their eyes open as to the time and resources required to complete the process.
NB: The term “incorporation” is misleading because the charity is actually being transferred to a completely new legal entity which will have a new registered charity number etc.
How long does it take?
There is no fixed timetable for completing an incorporation but a realistic estimate is between 6-9 months. This takes account of the fact that the Charity Commission will have to be involved (as a minimum, to register the new incorporated charity). It also reflects the fact that you will need to keep all of your current day-to-day activities going whilst the incorporation process takes place behind the scenes.
How much does it cost?
There is no fixed cost for competing an incorporation and in terms of actual financial outlay it could be free (if you did the whole thing yourself). In reality, at a minimum there will be a significant time investment in pushing the process through. And you might find that the best approach is to bring in external support for some aspects whilst undertaking others yourself. At the end of this note is a list of some of the key areas where charities might typically look for support with corresponding estimates for how much this would cost if you asked us to help.
Should we do it?
That is a question only you can answer! But it is worth bearing in mind some of the reasons why many unincorporated charities do opt to incorporate.
Without doubt, one of the main reasons why charities incorporated is to remove the risk of personal liability for trustees. When you operate through an unincorporated structure, any liabilities which the charity has may be passed on to the trustees if the charity’s assets are not sufficient to cover them. This might include things such as an accident or act of negligence, but could also be as simple as not having enough cash left to pay the rent. It is important to remember that insurance alone will probably not be sufficient to remove all risk; if the charity simply runs out of money and cannot met its commitments, it is unlikely that this is something which would be covered by insurance.
A second reason is that an unincorporated charity cannot itself own property, enter into contracts, hire employees etc. Yes, all these things can be done on behalf of an unincorporated charity, but strictly speaking they must be in the name of specific individuals on behalf of the charity. Most commonly this is seen with property, where the property is legally owned by named individuals on trust for the charity. This arrangement does have the potential to cause a lot of problems.
In short, if you were starting a charity today, would you choose an incorporated form or unincorporated? We think most would choose the former.
Can you help us?
Yes I can. I have helped many other charities go through an incorporation process and would be happy to help you do the same.
If you are thinking about incorporating your charity and would like to discuss this further, please get in touch or contact me on 020 3920 8399 or at firstname.lastname@example.org (and don’t worry, I won’t try and charge you for an initial discussion).
Please note: this summary is a general overview and does not constitute legal advice. The exact steps required will vary from charity to charity.